Overview of Chapter 7 Bankruptcy (Part A)
October 25th, 2010
Making the decision to file for chapter 7 bankruptcy should only come after extensive research and consideration. A Michigan bankruptcy attorney can help you evaluate your financial situation and discuss your options to relieve your debt, and can determine whether or not chapter 7 bankruptcy is necessary. There are many factors that determine your eligibility to file chapter 7 bankruptcy, and there are other alternatives that may be better suited for your situation.
Eligibility to File Chapter 7 Bankruptcy
To determine eligibility for chapter 7 bankruptcy, a court will look at your financial situation and weigh it against alternative means of debt relief. If your debts are business-related, filing for chapter 11 may be a more logical solution. Debtors with regular in will usually be advised to file for chapter 13 bankruptcy.
The primary factor that determines your eligibility to file for chapter 7 bankruptcy is your current monthly income. To meet the requirements to petition for chapter 7 bankruptcy, your income must be below the state median. If you file a petition and your income is greater than the state median, your financial situation will be put through a "means test" to make sure the petition is not abusive.
The means test first looks to see whether the debts are primarily business-related, in which case the petition will be denied. Next, the debtors' aggregate current monthly income over 5 years must be no more than $11,725 or 25% of the debtor's non-priority unsecured debt (as long as that amount is greater than $7,025).
Before going through the petition process and potentially risking denial, your Michigan bankruptcy attorney will discuss with you the alternative methods to debt relief.
Your attorney may suggest the following alternatives, including:
- a different chapter of bankruptcy;
- credit counseling;
- out-of-court negotiations with creditors; or
- asset liquidation.
Impact of Chapter 7 Bankruptcy on Your Credit
A successful petition for chapter 7 bankruptcy will result in the removal of most of your debts. This is not just a matter of wiping the slate clean; your non-exempt properties and assets will be liquidated and the money will be used to repay as much of your debt as possible.
It is imperative that you pay close attention to your disclosure of assets and make sure all exempt properties are noted as such. A Michigan bankruptcy attorney can assist you in reviewing your assets and determining which are exempt from liquidation in chapter 7 bankruptcy.
After your debts are reduced through the chapter 7 bankruptcy liquidation process, the chapter 7 bankruptcy will remain on your credit history for 10 years. While this may seem like a serious issue when looking to rebuild credit, there are many low-risk lines of credit you can secure soon after your bankruptcy that will help you re-establish healthy credit.